A legendary fund manager is piling into a market he says Wall Street is ignoring

Saba
Capital founder Boaz Weinstein thinks there's money to be made in
closed-end funds, which are ignored by Wall
Street.Reuters / Richard
Brian

Psst... there's a fortune to be made buying closed-end funds
(CEFs). Just don't tell Wall Street.

That was the message delivered in a recent interview by famed
credit trader Boaz Weinstein,
whose $1.7 billion firm Saba Capital is best known for
its winning bet against the JPMorgan trader known as the
"London Whale."

CEFs, which raise money through initial public offerings and
then trade on public exchanges, just like stocks, total $240
billion in market value right now. But unlike their open-ended
counterparts, managers are unable to create new shares to meet
investor demand.

To Weinstein, the appeal of CEFs at the moment stems largely from
how attractively-priced they are. Following what he describes as
some "peculiar dynamics" around the taper tantrum in 2013,
investors turned into large sellers, which caused CEFs to trade
at a discount over time.

"Although CEF discounts have narrowed in the past year, it’s
possible to buy a few dozen of them at an average 10% discount
without sacrificing quality," the Saba founder and chief
investment officer said in an interview with the Octavian Report, a subscription
publication featuring conversations with investment heavyweights.
"You go into it hoping the discount will narrow on its own, but
one of the nicest points about this investment is that while you
wait, you earn an above average yield, given the discounted
price."

While Weinstein points out that most institutional fixed-income
investors haven't ever owned a CEF, he does highlight some
notable fellow bulls. For one, Bill Gross still owns over $140
million of CEFs from Pimco, the giant bond fund he used to run.
Weinstein also highlights Jeff Gundlach, who he says has
issued CEFs and recommends buying them — but only at a discount,
of course.

Weinstein acknowledges that another appealing aspect is how the
space feels largely free of Wall Street meddling and influence.

"It’s a rare corner of the market where retail investors can get
an edge over institutions," he said in the Octavian interview.
"Most institutions don’t realize that it is a large enough market
to matter to them."